SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Jones Apparel Group, Inc.
------------------------------------------------------------------------
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------------------------------------------------------------------------
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<PAGE>
JONES APPAREL GROUP, INC.
250 RITTENHOUSE CIRCLE
BRISTOL, PENNSYLVANIA 19007
_________________
April 14, 1999
TO OUR STOCKHOLDERS:
The 1999 annual meeting will be held on May 19, 1999 at 10:00 a.m. at 270
Park Avenue, 11th floor, Conference Room C, New York, New York, and we look
forward to your attending either in person or by proxy. The Notice of
Meeting, the Proxy Statement and the Proxy Card from the Board of Directors
are enclosed. These materials provide further information concerning the
meeting.
Please read these materials so you will know what we plan to do at this
meeting. Also, please sign and return the accompanying proxy card in the
postage-paid envelope. This way, your shares will be voted as you direct
even if you can't attend the meeting. If you would like to attend, please
see the instructions on page 17.
Sidney Kimmel
Chairman
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE FILL IN, SIGN, DATE AND PROMPTLY MAIL THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE> i
TABLE OF CONTENTS
Page
Notice of Annual Meeting of Stockholders.......................... ii
Who Can Vote...................................................... 1
How You Can Vote.................................................. 1
Required Votes.................................................... 1
Security Ownership of Certain Beneficial Owners................... 2
Election of Directors............................................. 3
Section 16(a) Beneficial Ownership Reporting Compliance........... 5
Committees of the Board of Directors.............................. 5
Compensation Committee Interlocks and Insider Participation....... 5
Executive Compensation............................................ 6
Compensation Committee Report on Executive Compensation........... 8
Comparative Performance by the Company............................ 9
Employment and Compensation Arrangements.......................... 10
Compensation of Directors......................................... 11
Certain Transactions.............................................. 11
Proposal to Approve Independent Certified Public Accountants...... 11
Proposal to Approve the Adoption of the 1999 Stock Option Plan.... 12
Proposal to Approve the Executive Annual Incentive Plan........... 15
Submission of Stockholder Proposals............................... 17
Other Matters..................................................... 17
How to Attend the Annual Meeting.................................. 17
Annex A - 1999 Stock Option Plan.................................. 18
Annex B - Executive Annual Incentive Plan......................... 27
i
<PAGE> ii
JONES APPAREL GROUP, INC.
250 RITTENHOUSE CIRCLE
BRISTOL, PENNSYLVANIA 19007
_________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
NOTICE IS HEREBY GIVEN that the annual meeting of Stockholders of Jones
Apparel Group, Inc. will be held on May 19, 1999 at 10:00 a.m. at 270 Park
Avenue, 11th floor, Conference Room C, New York, New York. The purpose of
the meeting is to vote on the following matters:
1. The election of directors;
2. Ratification of the selection of BDO Seidman, LLP as the Company's
independent certified public accountants for 1999;
3. To approve the 1999 Stock Option Plan;
4. To approve the Executive Annual Incentive Plan; and
5. Such other business as may properly come before the meeting.
The close of business on March 31, 1999 has been fixed as the record date.
Only stockholders of record at the close of business on that date can vote at
the annual meeting.
If you would like to attend the meeting, please see the instructions on page
17 of the Proxy Statement. Otherwise, please promptly date, sign and mail the
enclosed proxy using the enclosed addressed envelope, which needs no postage
if mailed within the United States.
By Order of the Board of Directors
Sidney Kimmel
Chairman
Dated: April 14, 1999
ii
<PAGE> 1
PROXY STATEMENT
JONES APPAREL GROUP, INC.
250 Rittenhouse Circle
Bristol, PA 19007
ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors is soliciting proxies to be used at the annual meeting
of Stockholders of the Company to be held on May 19, 1999 at 10:00 a.m. at 270
Park Avenue, 11th floor, Conference Room C, New York, New York. This proxy
statement and the proxies solicited hereby will be sent to stockholders on or
about April 14, 1999. The Company's Annual Report to its Stockholders for
the year ended December 31, 1998 accompanies this proxy statement.
Who Can Vote
At the close of business on March 31, 1999, 103,644,879 shares of the
Company's common stock were outstanding and eligible for voting at the annual
meeting. Each stockholder of record has one vote for each share of common
stock held on all matters to come before the meeting. Only stockholders of
record at the close of business on March 31, 1999 are entitled to notice of
and to vote at the annual meeting.
How You Can Vote
If you return your properly signed proxy to us before the annual meeting, we
will vote your shares as you direct. You can specify on your proxy whether
your shares should be voted for all, some or none of the nominees for director.
You can also specify whether you approve, disapprove or abstain from (i) the
ratification of BDO Seidman, LLP to be the Company's independent certified
public accountants for 1999, (ii) the approval of the 1999 Stock Option Plan,
and (iii) the approval of the Executive Annual Incentive Plan.
The proxy may be revoked by the stockholder at any time prior to its use, by
voting in person at the annual meeting, by executing a later-dated proxy, or by
submitting a written notice of revocation to the Secretary of the Company at
the Company's office at the above address or at the annual meeting.
Under the rules of the Securities and Exchange Commission, boxes and a
designated blank space are provided on the proxy card for stockholders to
mark if they wish either to vote "for," "against" or "abstain" on each of the
proposals other than the election of directors, or to vote in favor or withhold
authority to vote for one or more of the Board of Directors' nominees for
director. If you do not specify on your proxy card how you want to vote your
shares, we will vote them "FOR" the election of all nominees for director as
set forth under "Election of Directors" below, and "FOR" each of (i) the
ratification of BDO Seidman, LLP to be the Company's independent certified
public accountants for 1999, (ii) the approval of the 1999 Stock Option Plan,
and (iii) the approval of the Executive Annual Incentive Plan.
Required Votes
Pennsylvania law and the Company's by-laws require the presence of a "quorum"
for the annual meeting. A quorum is defined as the presence, either in person
or represented by proxy, of the holders of a majority of the votes which could
be cast in the election or on a proposal. Votes withheld from director nominees
and abstentions will be counted in determining whether a quorum has been
reached. "Broker nonvotes," or proxies submitted by brokers which do not
indicate a vote for some or all of the proposals because they do not have
discretionary voting authority and have not received instructions as to how
to vote on those proposals (when such instructions are required by New York
Stock Exchange Rules), are not considered "shares present" and will not affect
the outcome of the vote.
Assuming a quorum has been reached, a determination must be made as to the
results of the vote on each matter submitted for stockholder approval. Each
of the proposals other than the election of directors must be approved by a
majority of votes cast on each proposal. Abstentions and broker non-votes are
not counted in determining the number of votes cast in connection with the
proposals other than the election of directors. Director nominees must receive
a plurality of the votes cast at the meeting, which means that a broker non-
vote or a vote withheld from a particular nominee or nominees will not affect
the outcome of the meeting.
Security Ownership of Certain Beneficial Owners
The information contained herein has been obtained from the Company's
records or from information furnished directly by the individual or entity
to the Company.
The table below shows, as of March 28, 1999, how much common stock of the
Company was owned by each director, nominee, executive officer of the Company
named in the Summary Compensation Table on page 6 (the "Named Executive
Officers"), each person known to the Company to own 5% or more of the
Company's common stock, determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, and all directors and executive officers
of the Company, as a group.
Number of Percentage
Name Shares Owned of Class
Sidney Kimmel........................ 14,717,167(1) 14%
Eric A. Rothfeld..................... 2,914,842(2) 3%
Jackwyn Nemerov...................... 381,828(3) *
Irwin Samelman....................... 200,001(4) *
Geraldine Stutz...................... 39,400(5) *
Howard Gittis........................ 8,000(5) *
Mark J. Schwartz..................... 10,000 *
Wesley R. Card....................... 185,668(6) *
All Directors and
Officers as a group
(9 persons).......................... 18,470,906(7) 18%
___________________
* Less than one percent.
(1) Includes 426,667 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
(2) Does not include shares which Mr. Rothfeld will receive based on a formula
applied to the 1998 earnings of Sun Apparel, Inc. The number of such
shares was not calculable as of March 28, 1999.
(3) Includes 333,336 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
(4) Includes 200,001 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
(5) Includes 4,000 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
(6) Includes 147,336 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
(7) Includes 1,129,340 shares issuable upon exercise of options exercisable on
or before May 28, 1999.
-2-
<PAGE> 3
Election of Directors
In accordance with the by-laws, the Company's Board of Directors has fixed
the number of directors which comprises the Board of Directors at seven
directors. The Company's Board of Directors has nominated seven persons to
be elected at the annual meeting to serve as directors of the Company until
the next annual meeting of stockholders and until their respective successors
are elected. All of the nominees currently serve as directors of the Company.
Pursuant to the terms of the agreement by which the Company acquired Sun
Apparel, Inc. from its stockholders in October 1998, the Company has agreed
to include Eric A. Rothfeld as a nominee of the Company's Board of Directors
for so long as Mr. Rothfeld is employed by the Company or Sun. Mr. Rothfeld
was a founder and the former majority owner and Chief Executive Officer of Sun,
and currently serves as its President and Chief Executive Officer.
We will vote your shares as you specify on the enclosed proxy form. If you
sign, date and return the proxy form but don't specify how you want your shares
voted, we will vote them "FOR" all of the nominees listed below. If unforseen
circumstances (such as death or disability) make it necessary for the Board of
Directors to substitute another person for any of the nominees, we will vote
your shares for that other person.
The following information is supplied with respect to each person nominated
and recommended to be elected by the Board of Directors of the Company and is
based upon the records of the Company and information furnished to it by the
nominees. See "Security Ownership of Certain Beneficial Owners" for information
pertaining to stock ownership by the nominees.
Other Positions with
the Company and Has served as
Name Age Principal Occupation director since
- ------------------- --- ------------------------------- --------------
Sidney Kimmel 71 Chairman and Chief 1975
Executive Officer
Jackwyn Nemerov 47 President 1998
Irwin Samelman 68 Executive Vice President, 1991
Marketing
Geraldine Stutz 70 Principal Partner, GSG Group 1991
Howard Gittis 65 Vice Chairman and Chief 1992
Administrative Officer of
MacAndrews & Forbes Holdings Inc.
Eric A. Rothfeld 47 President and Chief Executive 1998
Officer of Sun Apparel, Inc.
Mark J. Schwartz 41 President and Chief Executive 1998
Officer, Palladin Capital Group,
Inc., and Chairman and Chief
Executive Officer of Nine West
Group Inc. upon completion of its
acquisition by the Company
-3-
<PAGE> 4
Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970.
Mr. Kimmel has served as Chairman and Chief Executive Officer since 1975.
Prior to 1975, Mr. Kimmel occupied various executive offices, including
President of Jones New York and Vice President of John Meyer of Norwich.
Prior to founding Jones, Mr. Kimmel was employed by W.R. Grace & Co. and
was President of Villager, Inc., a sportswear company.
Ms. Nemerov was appointed President in January 1997. She joined the Company
in 1985 and served as President of the Company's casual sportswear divisions
and the Lauren by Ralph Lauren division. Prior to joining Jones, Ms. Nemerov
was President of the Gloria Vanderbilt division of Murjani, Inc. from 1980
through 1985.
Mr. Samelman has been Executive Vice President, Marketing of the Company
since 1991. In addition, from 1987 to 1991, Mr. Samelman provided marketing
consulting services to the Company through Samelman Associates, Inc., a private
consulting company controlled by him. Prior thereto, Mr. Samelman was Regional
Marketing Manager of Russ Togs, Inc. and Vice President of Villager, Inc.
Ms. Stutz has been a principal partner of GSG Group, a fashion and marketing
service, since 1993. Prior to 1993, she was Publisher of Panache Press at
Random House, a book publisher. From 1960 until 1986, Ms. Stutz was President
of Henri Bendel. Ms. Stutz serves on the Board of Directors of Tiffany & Co.,
The Theatre Development Fund and The Actors' Fund.
Mr. Gittis' principal occupation during the past five years has been Vice
Chairman and Chief Administrative Officer and a director of MacAndrews & Forbes
Holdings Inc., a diversified holding company. In addition, Mr. Gittis is a
director of Golden State Bancorp, Inc., Golden State Holdings, Inc., Loral Space
and Communications Ltd., M&F Worldwide Corp., Panavision, Inc., Revlon, Inc.,
Revlon Consumer Products Corporation, REV Holdings, Inc. and Sunbeam
Corporation.
Mr. Rothfeld serves as President and Chief Executive Officer of Sun Apparel,
Inc., a wholly-owned subsidiary of the Company acquired in October 1998. Mr.
Rothfeld served as President of Sun from 1986 to September 1997, and as Chairman
and Chief Executive Officer of Sun from September 1997 until its acquisition by
the Company.
Mr. Schwartz is President and Chief Executive Officer of Palladin Capital
Group, Inc., a New York-based private merchant banking firm he founded in 1997.
From 1994 to 1997, he was a Managing Director, and most recently President, of
Rosecliff Inc., also a private merchant banking firm. He is currently a
director of Platinum Entertainment, Inc., a full-service recorded music company,
and Balance Pharmaceuticals, Inc. During the past five years, Mr. Schwartz has
managed acquisitions, and has served as the chairman or a director, of various
public and private corporations. From 1985 to 1994, Mr. Schwartz was a member
of the Investment Banking Division of Merrill Lynch & Co. Mr. Schwartz will
become the Chairman and Chief Executive Officer of Nine West Group Inc. upon
completion of its acquisition by the Company, which is anticipated to occur by
the end of June 1999.
During 1998, the Board of Directors held five meetings and took action by
written consent on seven occasions. All incumbent directors attended at
least 75% of the total number of meetings of the Board of Directors and of
the Committees of the Board on which they served.
-4-
<PAGE> 5
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission (the "SEC") and the New York Stock
Exchange initial reports of ownership (Form 3) and reports of changes in
ownership (Forms 4 and 5) of common stock of the Company. Officers, directors
and greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Through an administrative oversight, Form 4 filings for Wesley R. Card,
Jackwyn Nemerov and Irwin Samelman, reporting the grant of stock options in
December 1998, were filed within thirty days after the due date. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company, all other Section 16(a) filing requirements applicable
to its officers, directors and greater than ten percent stockholders have been
complied with for the year ended December 31, 1998.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Stock Option Committee and
a Compensation Committee. The members of each committee are appointed by the
Board of Directors for a term beginning with the first regular meeting of the
Board of Directors following the annual meeting and ending when their respective
successors are elected and qualified.
Audit Committee. The members of the Audit Committee are Mr. Gittis, Ms.
Stutz and Mr. Schwartz. The Audit Committee meets periodically to review and
make recommendations with respect to the Company's internal controls and
financial reports, and in connection with such reviews, has met with
appropriate Company financial personnel and the Company's independent
certified public accountants. The Audit Committee met two times in 1998.
Mr. Schwartz has abstained from all voting on the Audit Committee since his
agreement with the Company that he will serve as the Chairman of Nine West
upon its anticipated acquisition by the Company. Following such acquisition,
Mr. Schwartz will no longer serve on the Audit Committee.
Stock Option Committee. The Stock Option Committee, consisting of Mr.
Gittis and Ms. Stutz, administers the 1991 and 1996 Stock Option Plans.
The Stock Option Committee met five times in 1998 and took action by written
consent on seven occasions in 1998. Mr. Gittis and Ms. Stutz are "non-employee
directors" (within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934).
Compensation Committee. The Compensation Committee, consisting of Mr. Gittis,
Ms. Stutz and Mr. Schwartz, determines the cash and other incentive
compensation, if any, to be paid to the Company's executive officers. The
Compensation Committee met three times in 1998 and took action by written
consent once in 1998. Mr. Schwartz has abstained from all voting on the
Compensation Committee since his agreement with the Company that he will serve
as the Chairman of Nine West upon its anticipated acquisition by the Company.
Following such acquisition, Mr. Schwartz will no longer serve on the
Compensation Committee.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 1998 were Ms. Stutz and Mr.
Gittis, both nonemployee directors, and Mr. Schwartz during the period from
October 20, 1998 through December 31, 1998. No member of the Compensation
Committee has a relationship that would constitute an interlocking relationship
with executive officers or other directors of the Company.
-5-
<PAGE> 6
Mr. Schwartz, a former investment banker, is President and Chief Executive
Officer of Palladin Capital Group, Inc. ("Palladin"), a merchant banking firm
which makes investments in various companies. Palladin served as the Company's
investment advisor in connection with the Company's acquisition of Sun Apparel,
Inc. in 1998, and is also serving in that role in connection with the Company's
planned acquisition of Nine West Group Inc. For its services in the Sun
acquisition, Palladin received a fee of $2,327,000 (plus reimbursement of
out-of-pocket expenses), and will receive 0.5% of the additional consideration
which may become payable to the former Sun stockholders based on Sun's
performance for each of the three years 1998 through 2001. Subject to
completion, the Company will pay Palladin a fee of 0.6% of the total
consideration in the Nine West transaction. If the Nine West transaction is
not completed, Palladin and the Company will negotiate a fee for Palladin's
services. A retainer of $100,000 has been paid, which will be applied against
any fees due Palladin. If the Nine West acquisition is completed, Mr. Schwartz
will withdraw from his full-time responsibilities at Palladin and become the
full-time Chairman and Chief Executive Officer of Nine West.
Executive Compensation
Summary of Executive Compensation
The following summary compensation table shows the before-tax compensation
for the three years ended December 31, 1998 for services in all capacities for
the Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------------------------ ------------
Other All
Annual Other
Name and Compen- Options Compen-
Principal Position Year Salary Bonus<F1> sation<F2> (shares)<F3> sation<F4>
- --------------------- ---- -------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sidney Kimmel 1998 $850,000 $1,000,000 $ 431,384<F5> 800,000 $2,330
Chairman and 1997 850,000 - - 800,000 3,150
Chief Executive Officer 1996 750,000 - - - 2,763
Jackwyn Nemerov 1998 750,000 750,000 5,132 100,000 2,330
President 1997 750,000 200,000 6,625 100,000 3,150
1996 554,167 150,000 5,661 400,000 3,150
Irwin Samelman 1998 750,000 600,000 1,043 100,000 2,330
Executive Vice 1997 650,000 200,000 - 400,000 3,150
President, Marketing 1996 500,000 150,000 - 200,000 3,048
Wesley R. Card 1998 350,000 300,000 8,600 75,000 2,330
Chief Financial Officer 1997 325,000 200,000 7,200 100,000 3,150
1996 300,000 100,000 7,200 200,000 3,056
Eric A. Rothfeld 1998 266,346 377,548 - - -
President and Chief
Executive Officer,
Sun Apparel, Inc.<F6>
</TABLE>
-6-
<PAGE> 7
_________________
<F1> Annual bonus amounts are reported for the year earned and accrued
regardless of the timing of the actual payment.
<F2> Other than for Mr. Kimmel, these amounts are allowances for the
employee's purchase or lease of personal automobiles and Company-
provided clothing.
<F3> Adjusted to reflect 2-for-1 stock splits effective October 2, 1996 and
June 25, 1998.
<F4> These amounts represent contributions by the Company to the Jones
Apparel Group, Inc. Retirement Plan on behalf of the named individuals.
<F5> The Company owns an apartment in New York City, which is used by Mr.
Kimmel. The amount in this column represents the Company's aggregate
incremental cost of maintaining the apartment.
<F6> The Company acquired Sun Apparel, Inc. on October 2, 1998. The
information presented for Mr. Rothfeld relates to the period from
that date through December 31, 1998.
Stock Options
Stock option exercises by the Named Executive Officers during 1998, as
well as the number and total value of unexercised "in-the-money" options
at December 31, 1998, are as follows:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 1997 (#) December 31, 1997 ($)
on Value
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Sidney Kimmel - $ - 266,667 / 1,333,333 $ - / $ -
Jackwyn Nemerov 66,256 $1,419,707 306,668 / 526,664 $4,113,321 / $4,442,870
Irwin Samelman 66,666 $1,368,307 200,001 / 433,333 $670,847 / $964,577
Wesley R. Card 48,332 $1,188,485 107,336 / 339,000 $1,017,569 / $2,433,663
Eric A. Rothfeld - $ - - / - $ - / $ -
</TABLE>
The following table sets forth the details of stock options granted to the
Named Executive Officers during 1998. The table shows, among other data,
hypothetical potential gains from stock options granted based entirely on
assumed growth rates of 5% and 10% in the value of the Company's stock price
over the ten-year life of the options. The assumed rates of growth were
selected by the Securities and Exchange Commission for illustration purposes
only and are not intended to predict future stock prices, which will depend on
market conditions and the Company's future performance and prospects. All
options were granted under the Company's 1996 Stock Option Plan.
-7-
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Appreciation
Individual Grants for Option Term
-------------------------------------------------- ------------------------
% of Total
Number of Options Granted Expir- At 5% At 10%
Options to Employees Price ation Annual Annual
Name Granted in Fiscal Year $/Share Date Growth Rate Growth Rate
- ----------------------- ---------- --------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sidney Kimmel 800,000<F1> 33.6% $27.625 03/27/2008 $13,889,000 $35,222,000
Jackwyn Nemerov 100,000<F2> 4.2% $19.125 12/28/2008 $1,202,500 $3,048,500
Irwin Samelman 100,000<F2> 4.2% $19.125 12/28/2008 $1,202,500 $3,048,500
Wesley R. Card 75,000<F2> 3.1% $19.125 12/28/2008 $901,625 $2,285,625
Eric A. Rothfeld - - - - - -
</TABLE>
___________________
<F1> The options vest and become exercisable on a cumulative basis as to 20% of
the shares subject to options in each of the years commencing March 27,
1999 until March 27, 2003, and thereafter are exercisable until the tenth
anniversary of the date of grant.
<F2> The options vest and become exercisable on a cumulative basis as to 33 1/3%
of the shares subject to options in each of the years commencing December
28, 1999 until December 28, 2001, and thereafter are exercisable until the
tenth anniversary of the date of grant.
Compensation Committee Report on Executive Compensation
General. The Compensation Committee was established in February 1993. The
Company's compensation plans under which its executive officers have been
compensated for services rendered during 1998 were in place prior to the
establishment of the present Compensation Committee. These policies evolved
over the years when the Company operated as a private company, prior to an
initial public stock offering in May 1991. At the time of the initial public
stock offering, the Chief Executive Officer's compensation level was reviewed
and compared to officers of other publicly held apparel companies, and has been
adjusted since that time. On January 1, 1997, Mr. Kimmel's salary was adjusted
to $850,000 based on an updated review of other publicly held apparel companies
and was kept at that level for 1998.
In the fourth quarter of 1998, the Compensation Committee engaged a consultant
to review the salary, annual cash bonus, annual incentive and long-term
incentive elements of the Company's executive compensation arrangements, as
compared to those of comparable publicly traded apparel companies, and to make
recommendations with respect to the Company's program of executive compensation.
As a result of this study, certain changes have been made to those identified
components of compensation, including the implementation of an Executive Annual
Incentive Plan, which is being proposed for adoption by the Stockholders at the
1999 annual meeting.
Compensation Philosophy. The Compensation Committee's executive compensation
philosophy is to provide competitive levels of compensation, integrate
management pay with the achievement of the Company's annual and long-term
performance goals, reward above average corporate performance, recognize
individual initiative and achievement, and assist the Company in attracting
and retaining qualified management. Management compensation is intended to
be set at levels that the Compensation Committee believes are consistent with
others in the Company's industry, and gives special emphasis to the need for
the best creative talent available in product-related positions.
-8-
<PAGE> 9
In determining what are competitive levels of compensation, the Compensation
Committee reviewed the salary and bonus levels of other publicly traded apparel
companies which were considered comparable to the Company, either in their size
or type of operations. The Compensation Committee has targeted the base salary
of Company executives at the median to high range of the surveyed companies.
Base Salaries. Base salaries for the Company's executive officers have been
established with reference to amounts paid by the Company's competitors for key
managerial and creative talent.
Annual Bonuses. For 1998 (and for previous years), the Company utilized a
bonus program for its executive officers under which cash bonuses were awarded
by the Compensation Committee on a subjective basis, considering individual job
performance, the level of bonuses paid by competitors, the level of base
compensation and incentive stock options awarded, and the overall performance
of the Company (with primary emphasis on growth in both revenues and net
earnings per share), with no specific weighing of the individual factors.
Prior to 1998, Mr. Kimmel had not participated in the bonus program. For
1998, the Compensation Committee determined that Mr. Kimmel should be paid a
bonus of $1,000,000 for the Company's excellent performance in achieving profit
targets and completing the acquisition of Sun Apparel, as well as the Company's
superior total stockholder return performance relative to industry-wide
performance, as shown in the performance graph on page 10.
Stock Option Grants. The Stock Option Committee awards stock options to the
Company's executive officers in order to link the long-term interests of such
persons and the Company's Stockholders, and assist in the retention of such
executives.
Tax Considerations. The Omnibus Budget Reconciliation Act of 1993 imposes a
limit, with certain exceptions, on the amount that a publicly held corporation
may deduct in any year for the compensation paid or accrued with respect to its
five most highly compensated officers. Because it became clear to the
Compensation Committee that the bonus awards for 1998 which, for competitive
purposes, should be made to Mr. Kimmel, Ms. Nemerov and Mr. Samelman, would
cause the total cash compensation of each such individual to exceed the tax-
deductible limit in 1998, the Compensation Committee engaged a consultant to
recommend certain changes to the Company's compensation program for its
executives, including recommending an annual incentive plan under which all
payments would be tax-deductible. The Executive Annual Incentive Plan being
proposed for adoption by the stockholders at the 1999 annual meeting is
designed to meet this criteria.
Compensation Committee: Geraldine Stutz, Howard Gittis, Mark J. Schwartz
March 28, 1999
Comparative Performance by the Company
The SEC requires the Company to present a chart comparing the cumulative
total stockholder return on its common stock with the cumulative total
stockholder return of (i) a broad equity market index and (ii) a published
industry index or peer group. The following chart compares the performance
of the Company's common stock with that of the S&P 500 Composite Index and
the S&P Textile Apparel Manufacturers Index, assuming an investment of $100
on December 31, 1993 in each of the Company's common stock, the stocks
comprising the S&P 500 Composite Index and the stocks comprising the S&P
Textile Apparel Manufacturers Index and the reinvestment of dividends
(although dividends have not been declared on the Company's common stock).
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[GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN
Measurement Period Jones S&P Textile
(Fiscal Year Covered) Apparel Group S&P 500 Manufacturers
- --------------------- ------------- ------- -------------
1993 $100.00 $100.00 $100.00
1994 86.20 101.32 97.94
1995 131.80 139.40 109.99
1996 250.21 171.40 151.12
1997 287.86 228.59 162.97
1998 295.40 293.91 141.04
Employment and Compensation Arrangements
In connection with the Company's acquisition of Sun Apparel, Inc. in October
1998, the Company entered into an employment agreement with Eric A. Rothfeld,
who was the majority owner and Chief Executive Officer of Sun. The agreement
provides that Mr. Rothfeld will serve as the President and Chief Executive
Officer of Sun during the period from the acquisition date through December 31,
2001. His annual salary will be $850,000. Mr. Rothfeld will receive a bonus
of $162,500 for each fiscal quarter in which Sun's net sales exceed its net
sales in the corresponding fiscal quarter in 1997, or in which yearly net sales
exceed net sales for fiscal 1997. In addition to the quarterly bonus, Mr.
Rothfeld will receive an annual bonus if Sun's earnings before interest and
income taxes (as defined) exceed certain targeted amounts.
In the event of Mr. Rothfeld's death before the end of the term, the Company
is obligated to pay his estate lump sum payments equal to (i) any unpaid salary
and quarterly bonus amount prorated through the date of death, (ii) an annual
bonus (based on the average annual bonus for the preceding two years) prorated
through the date of death, and (iii) base salary, quarterly and annual bonuses
(based on the average annual bonus for the preceding two years) with respect to
the remainder of the term. If the Company terminates Mr. Rothfeld's employment
other than for "cause" (as defined) or Mr. Rothfeld resigns for "good reason",
Mr. Rothfeld is entitled to receive the foregoing payments, and is also entitled
to continue to participate in (or, at the Company's expense, to otherwise
receive the same benefits provided by) the Company's benefit plans in which he
was participating immediately prior to such termination or resignation. If Mr.
Rothfeld's employment is terminated by the Company for "cause" (as defined)
or he resigns other than with "good reason" (as defined), Mr. Rothfeld would
be entitled solely to his unpaid salary and quarterly bonus prorated through
the date of termination or resignation.
The employment agreement also contains certain non-competition restrictions
on Mr. Rothfeld during his employment and for two years following the end of
the term (or two years from the date of termination,
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<PAGE> 11
if Mr. Rothfeld is terminated without "cause" or resigns for "good reason").
Mr. Rothfeld is also prohibited from interfering in the Company's employment
of its employees during the period ending one-year after the end of the
applicable non-competition period.
The Company has an agreement with Wesley R. Card, its Chief Financial
Officer, pursuant to which Mr. Card would be eligible to receive up to
12 months of salary continuation were the Company to terminate his employment
other than for willful misconduct or fraud.
Compensation of Directors
Each director who is not a full-time employee of the Company receives an
annual grant of options to purchase 2,000 shares of the Company's common
stock at an exercise price of $1.00 per share. Each option will expire on
the tenth anniversary of its date of grant, and will be exercisable
commencing six months from the date of grant, in whole or in part,
during the exercise period.
Certain Transactions
In the first quarter of 1998, the Company purchased office, warehousing
and distribution facilities in a 419,000 square foot free-standing building
located in Bristol, Pennsylvania, which, until March 1998, was leased from
a partnership equally owned by Mr. Kimmel and an unrelated third party.
The purchase price was $10,500,000, of which $4,500,000 was received by Mr.
Kimmel. The Company believes that the purchase price represented the fair
market value of the property as used by the Company.
In October 1998, the Company acquired Sun Apparel, Inc. from its
stockholders. Mr. Rothfeld and a family trust owned approximately 60%
of Sun. Mr. Rothfeld and the family trust received approximately
$65,420,000 in cash and 3,104,548 shares of the Company's common
stock for their interests in Sun. In addition, the former Sun
stockholders are entitled to receive additional consideration of
$2.00 for each $1.00 that Sun's earnings before interest and taxes
(as defined) for each of the years 1998 through 2001 exceed targeted
levels. Such additional consideration will be paid 59% in cash and
41% in shares of the Company's stock, the value of which will be
determined by the prices at which the stock trades in a defined period
preceding delivery in each year.
The Company's 1998 annual year-end holiday party for its New York City
area employees was held at Cipriani Wall Street, a banquet facility owned
by Mr. Kimmel, at a cost of approximately $98,000.
Proposal to Approve Independent Certified Public Accountants
BDO Seidman, LLP served as the independent certified public accountants
of the Company during 1998 and has been selected, subject to ratification
by the Stockholders of the Company at the annual meeting, to serve as the
Company's independent certified public accountants for 1999. BDO Seidman,
LLP has served as the Company's independent accountants for more than the
past five years and is, therefore, familiar with the affairs and financial
procedures of the Company. A representative of BDO Seidman, LLP will be
present at the annual meeting, with an opportunity to make a statement if
he desires to do so, and will be available to respond to appropriate
questions.
If the selection of BDO Seidman, LLP is not ratified, or if prior to the
next annual meeting of stockholders it declines to act or otherwise becomes
incapable of acting, or if its employment is otherwise discontinued by the
Board of Directors, the Board of Directors will appoint other independent
certified public accountants whose employment for any period subsequent to
the next annual meeting will be subject to stockholder approval at such
meeting.
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<PAGE> 12
Proposal to Approve the Adoption of the 1999 Stock Option Plan
The Board of Directors has adopted and proposed for submission for your
approval the Jones Apparel Group, Inc. 1999 Stock Option Plan (the "1999
Plan"). The Board of Directors believes that the 1999 Plan is desirable
to attract and retain executives and other key employees of outstanding
ability. Approximately 175 persons, including nine executive officers and
directors, are expected to be eligible to participate in the 1999 Plan.
An aggregate of 18,000,000 shares of common stock, adjusted for subsequent
stock splits, were reserved for issuance of employee stock options under the
Company's 1991 and 1996 Stock Option Plans. As of December 31, 1998, 164,568
shares of common stock remained available for issuance upon exercise of stock
options which have been issued or are issuable pursuant to those plans.
The following summary describes the material features of the 1999 Plan.
You should refer to Annex A for a complete copy of the 1999 Plan. A maximum
of 10,000,000 shares of common stock, subject to adjustment described below,
have been reserved for issuance pursuant to options to be granted under the
1999 Plan.
The 1999 Plan will be administered by the Stock Option Committee. The
Stock Option Committee will be comprised of directors who qualify as "non-
employee directors" within the meaning of Section 16 of the Securities
Exchange Act of 1934 and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code. During the ten year period ending in
2009, the Stock Option Committee will have the authority, subject to the terms
of the 1999 Plan, to:
- determine when and to whom to make grants under the 1999 Plan,
- determine the number of shares to be covered by the grants, the types
and terms of options and stock appreciation rights to be granted and
the exercise prices of options and stock appreciation rights,
- interpret and implement the 1999 Plan, and
- prescribe, amend and rescind rules and regulations relating to the
1999 Plan.
The Stock Option Committee's determinations under the 1999 Plan need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the 1999 Plan whether or not such persons
are similarly situated.
The Board of Directors may amend, suspend or discontinue the 1999 Plan at
any time except that, unless an amendment is approved, at a meeting held
within 12 months before or after the date of the amendment, by the holders
of a majority of the issued and outstanding shares of common stock entitled
to vote, no such amendment may:
- increase the maximum number of shares as to which awards may be
granted under the 1999 Plan, except for adjustments to reflect
stock dividends or other recapitalization affecting the number of
kind or outstanding shares,
- materially increase the benefit accruing to the 1999 Plan participants, or
- materially change the requirements as to eligibility for participation
in the 1999 Plan.
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Under the terms of the 1999 Plan, "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code, "nonqualified stock options" and
stock appreciation rights may be granted to directors, officers, key employees
and consultants of the Company and any of its subsidiaries (as defined in the
1999 Plan), except that incentive stock options may be granted only to employees
of the Company and its subsidiaries.
To the extent that the aggregate fair market value (as defined in the 1999
Plan), determined as of the date of grant of an incentive stock option, of
common stock with respect to which incentive stock options granted under the
1999 Plan and all other option plans of the Company or its subsidiaries
exercisable for the first time by an individual during any calendar year
exceeds $100,000, such options shall be treated as options that are not
incentive stock options.
Initially, each option will be exercisable over a period, determined by the
Stock Option Committee in its discretion, but not to exceed ten years from the
date of grant. However, in the case of an incentive stock option granted to
an individual who, at the time such incentive stock option is granted, owns
shares possessing 10% or more of the total combined voting power of all classes
of stock of the Company or its subsidiary corporations (a "10% stockholder"),
the exercise period for an incentive stock option may not exceed five years
from the date of grant. Options may be exercisable during the option period
at such times, in such amounts, in accordance with such terms and conditions,
and subject to such restrictions, as are set forth in the option agreement
evidencing the grant of such options. The Stock Option Committee may, in its
discretion, with the grantee's consent, cancel any award of options or stock
appreciation rights and issue a new award in substitution therefor or
accelerate the exercisability of any award granted under the 1999 Plan or
extend the scheduled expiration of an award.
The exercise price of an option may not be less than the fair market value
of the shares of common stock on the date of grant, except that:
- in the case of an incentive stock option granted to a 10% stockholder,
the option price may not be less than 110% of fair market value, and
- in the case of an option granted to a director solely for his services
as director, the option price may be less than fair market value.
The option price of, and the number of shares covered by, each option will
not change during the life of the option, except for adjustments to reflect
stock dividends, splits, other recapitalization or reclassification or
changes affecting the number or kind of outstanding shares.
The shares purchased upon the exercise of an option are to be paid for in
cash or by delivery of previously acquired shares of common stock with a fair
market value equal to the total option price, or in a combination of such
methods. Under the 1999 Plan, an option may provide for a "cashless exercise"
by allowing the optionee to direct an immediate market sale or margin loan
respecting the shares under the option pursuant to an extension of credit by
the Company. Pursuant to this procedure, the optionee would direct the
delivery of the shares under the option from the Company to a brokerage firm
and the delivery of the option price from the sale or margin loan proceeds
from the brokerage firm to the Company.
Incentive stock options and stock appreciation rights may be transferred
by an optionee or grantee only by will or by the laws of descent and
distribution, and may be exercised only by the optionee or grantee during
his lifetime. Nonqualified stock options may be transferred to or for the
benefit of (by trust) the spouse or lineal descendants of the optionee in
accordance with the 1999 Plan. Except as otherwise provided
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<PAGE> 14
in the 1999 Plan, in the case of retirement, disability or death, awards
generally terminate three months after termination of employment or service
(but not beyond the original expiration date); provided, however, that,
subject to a written agreement between the Company and the optionee providing
otherwise, all of an optionee's or a grantee's outstanding awards shall
terminate upon his voluntary termination of employment or service without
the written consent of the Company or a subsidiary corporation or upon
involuntary termination for cause.
The stock option committee may grant stock appreciation rights in
conjunction with all or part of an option. Upon the exercise of a stock
appreciation right, a holder will generally be entitled, without payment
to the Company, to receive cash, shares of common stock or any combination
thereof as elected by the holder, subject to the approval of the Board of
Directors, in an amount equal to the excess of the fair market value of one
share of common stock on the exercise date over the exercise price of the
related option, multiplied by the number of shares in respect of which the
stock appreciation right is exercised.
Tax Aspects of the 1999 Plan. The following are the principal Federal
income tax consequences generally applicable to awards granted under the
1999 Plan. The grant of an option or stock appreciation right will create
no Federal income tax consequences for the recipient or the Company or a
subsidiary employing the recipient. The holder of an incentive stock option
will have no taxable income upon exercising an incentive stock option, except
that the holder may have income for alternative minimum tax purposes, and the
employer generally will receive no deduction when an incentive stock option
is exercised.
Generally, if the optionee disposes of shares acquired upon exercise of an
incentive stock option within two years of the date of grant or one year of
the date of exercise, the optionee will recognize ordinary income, and the
Company will be entitled to a deduction, equal to the excess of the fair market
value of the shares on the date of exercise over the option price (limited
generally to the gain on the sale). The balance of any gain, and any loss,
will be treated as a capital gain or loss to the optionee. If the shares are
disposed of after the foregoing holding requirements are met, the Company will
not be entitled to any deduction, and the entire gain or loss for the optionee
will be treated as a capital gain or loss.
In general, upon exercising a stock option other than an incentive stock
option, the optionee must recognize ordinary income equal to the excess of
the fair market value of the stock acquired on the date of exercise over the
option price, and the Company will then be entitled to a deduction for the
same amount. The disposition of shares acquired upon exercise of a
nonqualified stock option will generally result in a capital gain or
loss for the optionee, but will have no tax consequences for the Company.
In general, upon exercising a stock appreciation right, the amount of any
cash received and the fair market value on the exercise date of any shares of
common stock received are taxable to the recipient as ordinary income and
deductible by the Company.
Awards granted under the 1999 Plan. As of the date hereof, the Stock
Option Committee has not awarded any options under the 1999 Plan and has
not made any determination as to the grant of any options under the 1999
Plan.
Federal Securities Law. We intend to register the shares reserved for
issuance under the 1999 Plan with the SEC following stockholder approval
of the 1999 Plan. Upon effectiveness of the registration statement, shares
acquired through the exercise of the options granted under the 1999 Plan
will be registered shares within the meaning of the Securities Act of 1933.
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<PAGE> 15
On March 26, 1999, the last reported sales price per share of the common
stock as reported on the New York Stock Exchange Composite Tape was $24-7/16.
Based upon such price, the aggregate market value of the 10,000,000 shares of
common stock subject to the 1999 Plan is $244,375,000.
The Board of Directors recommends a Vote FOR approval of the 1999 Stock
Option Plan.
Proposal to Approve the Executive Annual Incentive Plan
The Board of Directors has adopted and proposed for submission for your
approval the Jones Apparel Group, Inc. Executive Annual Incentive Plan
(the "Incentive Plan"). Section 162(m) of the Internal Revenue Code generally
limits the deductibility of compensation paid to the Named Executive Officers
to $1,000,000 per year. Performance-based compensation is not subject to this
limitation on deductibility if it is payable on account of performance and
satisfies certain other requirements, one of which is that the plan under
which the compensation is payable be approved by stockholders. The Board
of Directors believes that the Incentive Plan benefits stockholders by
providing an incentive to employees who contribute to the success of the
business by rewarding superior financial performance and by qualifying
amounts paid pursuant to the Incentive Plan for a Federal income tax
deduction. Approximately seven executive officers and directors, are
expected to be eligible to participate in the Incentive Plan.
The following summary describes the material features of the Incentive
Plan. You should refer to Annex B for a complete copy of the Incentive Plan.
The Incentive Plan will be administered by the Compensation Committee.
The Compensation Committee shall consist of at least 2 persons, each of whom
shall be an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code. The Compensation Committee will have the authority,
subject to the terms of the Incentive Plan, to:
- determine which persons participate in the Incentive Plan;
- determine the terms, conditions, restrictions and performance
criteria for any award under the Incentive Plan;
- determine whether, to what extent and under what circumstances an
award under the Incentive Plan may be settled, canceled, forfeited
or surrendered;
- make adjustments in the performance factors for unusual or non-recurring
events or changes in applicable laws, regulations or accounting principles;
- interpret and administer the Incentive Plan or any award under the
Incentive Plan;
- prescribe, amend and rescind rules and regulations relating to the
Incentive Plan; and
- make all other determinations necessary or advisable for the
administration of the Incentive Plan.
The Board of Directors or the Compensation Committee may amend, suspend or
discontinue the Incentive Plan at any time except that:
- no amendment requiring stockholder approval in order for the Incentive
Plan to continue to comply with Section 162(m) of the Internal Revenue
Code shall be effective unless the required stockholders have approved
the amendment; and
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<PAGE> 16
no amendment shall adversely affect a participant's rights under an award
under the Incentive Plan if the amendment is adopted during or after the
performance period to which the award relates.
Under the terms of the Incentive Plan, awards for a particular performance
period may be granted to executive officers of the Company and its
subsidiaries who have been deemed "covered employees", as defined in the
Incentive Plan, and approved by the Compensation Committee in its sole
discretion to be participants in the Incentive Plan. Each fiscal year of
the Company is a performance period.
The performance factors applicable to each award under the Incentive Plan
shall be determined by the Compensation Committee and communicated to each
participant by the end of the first quarter of each performance period.
These performance factors may include:
- a level of performance below which no payment shall be made;
- levels of performance at which specified percentages of the award
shall be paid; or
- a maximum level of performance above which no additional award will
be paid; and/or
- any or all of the following: revenue; net sales; operating income;
earnings before all or any of interest, taxes, depreciation and/or
amortization; cash flow; working capital and components thereof;
return on equity; return on assets; return on investment; stock price;
total shareholder return; market share; earnings per share; earnings
from continuing operations; levels of expense, cost or liability by
category, operating unit or any other delineation; or any increase or
decrease of one or more of the foregoing over a specified period.
For each performance period:
- the aggregate awards available under the Incentive Plan shall not be
greater than 3.0% of Income Before Provision for Income Taxes of the
Company but adjusted to exclude the impact of extraordinary items,
discontinued operations, and changes in accounting principles
recognized in such performance period (the "Incentive Pool") and
- no individual "covered employee" shall receive an award greater
than $3,000,000.
By the end of the first quarter of each performance period, the Compensation
Committee shall allocate a percentage of the Incentive Pool to each "covered
employee" under the Incentive Plan. Any amounts of the Incentive Pool not
allocated to "covered employees" by the Compensation Committee during a given
performance period shall not be available for awards to "covered employees"
during future performance periods.
Following the end of each performance period, the Compensation Committee
will determine the award for each participant based on a review of actual
results and the performance factors. Awards will be made within a reasonable
period after the end of a performance period, after certification by the
Compensation Committee of awards based on the allocation of the Incentive
Pool. The Compensation Committee may, in its absolute discretion, reduce
(but may not increase) the award for any performance period to any "covered
employee" from the previously allocated amount.
Tax Aspects of the Incentive Plan. All amounts paid under the Incentive
Plan are taxable income to the employee when paid. The Company will be
entitled to a Federal income tax deduction for all amounts paid
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<PAGE> 17
under the Incentive Plan if it is approved by stockholders and meets the
other requirements of Section 162(m) of the Internal Revenue Code.
The Board of Directors recommends a vote FOR approval of the Incentive Plan.
Submission of Stockholder Proposals
Any stockholder proposal intended for inclusion in the proxy material for
the 2000 annual meeting must be received by the Company at the address on
the first page of this proxy statement no later than December 26, 1999.
Other Matters
The Board of Directors is not aware of any business constituting a proper
subject for action by the stockholders to be presented at the meeting, other
than those set forth in this Proxy Statement. However, if any such matter
should properly come before the meeting, the persons named in the enclosed
proxy intend to vote such proxy in accordance with their best judgment.
How to Attend the Annual Meeting
The meeting is being held at 270 Park Avenue, 11th floor, Conference Room
C, New York, New York. 270 Park Avenue is located on the West side of Park
Avenue, between 47th and 48th Streets.
THE COMPANY'S 1998 FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION, EXCLUSIVE OF EXHIBITS, WILL BE MAILED WITHOUT CHARGE TO ANY
STOCKHOLDER ENTITLED TO VOTE AT THE MEETING, UPON WRITTEN REQUEST TO:
JONES APPAREL GROUP, INC., 250 RITTENHOUSE CIRCLE, BRISTOL,
PENNSYLVANIA 19007; ATTN: WESLEY R. CARD.
In addition to soliciting proxies by mail, the Company may make requests
for proxies by telephone, telegraph or messenger or by personal solicitation
by officers, directors, or employees of the Company, or by any one or more
of the foregoing means. The Company will also reimburse brokerage firms and
other nominees for their actual out-of-pocket expenses in forwarding proxy
material to beneficial owners of the Company's shares. All expenses in
connection with such solicitation are to be paid by the Company.
By Order of the Board of Directors
Sidney Kimmel
Chairman
Dated: April 14, 1999
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<PAGE> 18
ANNEX A
JONES APPAREL GROUP, INC.
1999 STOCK OPTION PLAN
1. Purpose of the 1999 Stock Option Plan. Jones Apparel Group, Inc. (the
"Company") desires to attract and retain the best available talent and to
encourage the highest level of performance. The 1999 Stock Option Plan (the
"Stock Option Plan") is intended to contribute significantly to the attainment
of these objectives by (i) providing long-term incentives and rewards to all
key employees of the Company (including officers and directors who are key
employees of the Company and also including key employees of any subsidiary
of the Company which may include officers or directors of any subsidiary of
the Company who are also key employees of said subsidiary), and those directors
and officers, consultants, advisers, agents or independent representatives of
the Company or of any subsidiary (together, "Eligible Individuals"), who are
contributing or in a position to contribute to the long-term success and growth
of the Company or of any subsidiary, (ii) assisting the Company and any
subsidiary in attracting and retaining Eligible Individuals with experience
and ability, and (iii) associating more closely the interests of such Eligible
Individuals with those of the Company's stockholders.
2. Scope and Duration of the Stock Option Plan. Under the Stock Option Plan,
Options ("Options") to purchase Shares of common stock, par value $.01 per share
("Common Stock"), may be granted to Eligible Individuals. Options granted to
employees (including officers and directors who are employees) of the Company
or a subsidiary corporation thereof, may, at the time of grant, be designated
by the Company's Board of Directors either as incentive stock options ("ISOs"),
with the attendant tax benefits as provided for under Sections 421 and 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or as nonqualified
stock options. Stock appreciation rights (the "Rights") may be granted in
association with Options. The aggregate number of shares of Common Stock
reserved for grant from time to time under the Stock Option Plan is 10,000,000
shares of Common Stock, which shares of Common Stock may be authorized but
unissued shares of Common Stock or shares of Common Stock, which shall have
been or which may be reacquired by the Company, as the Board of Directors of
the Company shall from time to time determine. Such aggregate numbers shall
be subject to adjustment as provided in Paragraph 12. If an Option shall
expire or terminate for any reason without having been exercised in full or
surrendered in full in connection with the exercise of a Right, the shares of
Common Stock represented by the portion thereof not so exercised or surrendered
shall (unless the Stock Option Plan shall have been terminated) become available
for other Options under the Stock Option Plan. Subject to Paragraph 14, no
Option or Right shall be granted under the Stock Option Plan after May 19, 2009.
The grant of an Option and/or a Right is sometimes referred to herein as an
Award thereof.
3. Administration of the Stock Option Plan. This Stock Option Plan will be
administered by the Board of Directors of the Company (the "Board of
Directors"). The Board of Directors, in its discretion, may designate an
Option committee (the "Option Committee" or "Committee") composed of at least
two members of the Board of Directors to administer this Stock Option Plan.
Members of the Stock Option Committee shall meet such qualifications as the
Board of Directors may determine; provided, however that each member shall
qualify as a "Non-Employee Director" under Section 16 of the Securities
Exchange Act of 1934, as amended and as an "Outside Director" as defined in
Code Section 162(m) and any regulations promulgated thereunder. Subject to
the express provisions of this Plan, the Board of Directors or the Committee
(hereinafter, the terms "Option Committee" or "Committee", shall mean the Board
of Directors whenever no such Option Committee has been designated); shall have
authority in its discretion, subject to and not inconsistent with the express
provisions of this Stock Option Plan, to direct the grant of Options; to
determine the purchase price of the Common Stock covered by each Option; the
Eligible Individuals to
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<PAGE> 19
whom, and the time or times at which, Options shall be granted and subject
to the maximum set forth in Paragraph 4 hereof, the number of shares of
Common Stock to be covered by each Option; to designate Options as ISOs;
to direct the grant of Rights in connection with any Option; to interpret
the Stock Option Plan; to determine the time or times at which Options may
be exercised; to prescribe, amend and rescind rules and regulations relating
to the Stock Option Plan, including, without limitation, such rules and
regulations as it shall deem advisable, so that transactions involving Options
may qualify for exemption under such rules and regulations as the Securities
and Exchange Commission may promulgate from time to time exempting transactions
from Section 16(b) of the Securities and Exchange Act of 1934; to determine the
terms and provisions of and to cause the Company to enter into agreements with
Eligible Individuals in connection with Options (Awards) granted under the
Stock Option Plan (the "Agreements"), which Agreements may vary from one
another as the Committee shall deem appropriate; and to make all other
determinations it may deem necessary or advisable for the administration of
the Stock Option Plan.
Members of the Committee shall serve at the pleasure of the Board of
Directors. The Committee shall have and may exercise all of the powers of
the Board of Directors under the Stock Option Plan, other than the power to
appoint a director to Committee membership. A majority of the Committee
shall constitute a quorum, and acts of a majority of the members present at
any meeting at which a quorum is present shall be deemed the acts of the
Committee. The Committee may also act by instrument signed by a majority
of the members of the Committee.
Every action, decision, interpretation or determination by the Committee
with respect to the application or administration of this Stock Option Plan
shall be final and binding upon the Company and each person holding any
Option granted under this Stock Option Plan.
4. Eligibility: Factors to be Considered in Granting Options and
Designating ISOs (Awards). (a) Options may be granted only to (i) key
employees (including officers and directors who are employees) of the
Company or any subsidiary corporation thereof on the date of grant (Options
so granted may be designated as ISOs), and (ii) directors or officers of the
Company or a subsidiary corporation thereof on the date of grant, without
regard to whether they are employees, and (iii) consultants or advisers to
or agents or independent representatives of the Company or a subsidiary
thereof. In determining the persons to whom Options (Awards) shall be
granted and the number of shares of Common Stock to be covered by each
Award, the Committee shall take into account the nature of the duties of
the respective persons, their present and potential contributions to the
Company's (including subsidiaries') successful operation and such other
factors as the Board of Directors in its discretion shall deem relevant.
Subject to the provisions of Paragraph 2, an Eligible Individual may
receive Options (Awards) on more than one occasion under the Stock Option
Plan. No person shall be eligible for an Option grant if he shall have
filed with the Secretary of the Company an instrument waiving such
eligibility; provided that any such waiver may be revoked by filing with
the Secretary of the Company an instrument of revocation, which revocation
will be effective upon such filing.
(b) In the case of each ISO granted to an employee, the aggregate fair
market value (determined at the time the ISO is granted) of the Common
Stock with respect to which the ISO is exercisable for the first time by
such employee during any calendar year (under all plans of the Company and
any subsidiary corporation thereof) may not exceed $100,000.
(c) In no event shall any Eligible Individual be granted Options to purchase
more than 3,000,000 shares of Common Stock pursuant to this Stock Option Plan.
5. Option Price. (a) The purchase price per share of the Common Stock
covered by each Option shall be established by the Committee but in no event
shall it be less than the fair market value of a share of the Common Stock
on the date the Option is granted; provided, however, that if an Option is
granted to a
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director of the Company for services solely as a director, and such grant is
approved by the Board of Directors, the purchase price may be less than such
fair market value. If, at the time an Option is granted, the Common Stock
is publicly traded, such fair market value shall be the closing price (or the
mean of the latest bid and asked prices) of a share of Common Stock on such
date as reported in The Wall Street Journal (or a publication or reporting
service deemed equivalent to The Wall Street Journal for such purpose by
the Board of Directors) for any national securities exchange or other
securities market which at the time is included in the stock price quotations
of such publication. In the event that the Committee shall determine such
stock price quotation is not representative of fair market value by reason of
the lack of a significant number of recent transactions or otherwise, the
Committee may determine fair market value in such a manner as it shall deem
appropriate under the circumstances. If, at the time an Option is granted,
the Common Stock is not publicly traded, the Committee shall make a good faith
attempt to determine such fair market value.
(b) In the case of an employee who at the time an ISO is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
the stock of the employer corporation or of its parent or a subsidiary
corporation thereof (a "10% Holder"), the purchase price of the Common Stock
covered by any ISO shall in no event be less than 110% of the fair market
value of the Common Stock at the time the ISO is granted.
6. Term of Options. The term of each Option shall be fixed by the Committee,
but in no event shall it be exercisable more than 10 years from the date of
grant, subject to earlier termination as provided in Paragraphs 10 and 11.
An ISO granted to a 10% Holder shall not be exercisable more than 5 years from
the date of grant.
7. Exercise of Options. (a) Subject to the provisions of the Stock Option
Plan, an Option granted to an employee under the Stock Option Plan shall become
fully exercisable at such time or times as the Committee in its sole discretion
shall determine at the time of the granting of the Option or thereafter, except
that in no event shall any such Option be exercisable later than 10 years after
its grant.
(b) An Option may be exercised as to any or all full shares of Common Stock
as to which the Option is then exercisable.
(c) The purchase price of the shares of Common Stock as to which an Option
is exercised shall be paid in full in cash at the time of exercise; provided
that, the purchase price may be paid (i) in whole or in part, by surrender or
delivery to the Company of securities of the Company having a fair market
value on the date of the exercise equal to the portion of the purchase price
being so paid, or (ii) in cash by a broker-dealer acceptable to the Company
to whom the Optionee has submitted an irrevocable notice of exercise. Fair
market value shall be determined as provided in Paragraph 5 for the
determination of such value on the date of the grant. In addition, the
holder shall, upon notification of the amount due and prior to or concurrently
with delivery to the holder of a certificate representing such shares of
Common Stock, pay promptly any amount necessary to satisfy applicable Federal,
state or local tax requirements.
(d) Except as provided in Paragraphs 10 and 11, no Option may be exercised
unless the original grantee thereof is then an Eligible Individual.
(e) The Option holder shall have the rights of a stockholder with respect
to shares of Common Stock covered by an Option only upon becoming the holder
of record of such shares of Common Stock.
(f) Notwithstanding any other provision of this Stock Option Plan, the
Company shall not be required to issue or deliver any share of stock upon
the exercise of an Option prior to the admission of such share to
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listing on any stock exchange or automated quotation system on which the
Company's Common Stock may then be listed.
8. Award and Exercise of Rights. (a) A Right may be awarded by the
Committee in association with any Option either at the time such Option
is granted or at any time prior to the exercise, termination or expiration
of such Option. Each such Right shall be subject to the same terms and
conditions as the related Option and shall be exercisable only to the
extent such Option is exercisable, and the Right Value, as hereinafter
defined, is a positive amount.
(b) A Right shall entitle the holder to surrender to the Company
unexercised the related Option (or any portion or portions thereof which
the holder from time to time shall determine to surrender for this
purpose) and to receive in exchange therefor, subject to the provisions
of the Stock Option Plan and such rules and regulations as from time to
time may be established by the Committee, a payment having an aggregate
value equal to the product of (A) the Right Value of one share of Common
Stock, as hereinafter defined, and (B) the number of shares of Common
Stock called for by the Option, or portion thereof, which is surrendered.
For purposes of the Stock Option Plan: the Right Value of one share of
Common Stock shall be the excess of (i) the fair market value of one share
of Common Stock on the date on which the Right is exercised, over (ii) the
purchase price per share of the Common Stock covered by the surrendered
Option. The date on which the Committee shall receive notice from the
holder of the exercise of a Right shall be considered the date on which
the Right is exercised.
Upon exercise of a Right, a holder shall indicate to the Committee what
portion of the payment he desires to receive in cash and what portion in
shares of Common Stock of the Company; provided, that the Board of Directors
shall have sole discretion to determine in any case or cases that payment
will be made in the form of all cash, all shares of Common Stock, or any
combination thereof. If the holder is to receive a portion of such payment
in shares of Common Stock, the number of shares of Common Stock shall be
determined by dividing the amount of such portion by the fair market value
of one share of Common Stock on the date on which the Right is exercised.
The number of shares of Common Stock which may be received pursuant to the
exercise of a Right may not exceed the number of shares of Common Stock
covered by the related Option, or portion thereof, which is surrendered.
No fractional shares of Common Stock will be issued, but instead cash will
be paid for any such fractional share of Common Stock.
No payment will be required from the holder upon exercise of a Right,
except that the holder shall, upon notification of the amount due and
prior to or concurrently with delivery to the holder of cash or a
certificate representing shares of Common Stock, pay promptly any amount
necessary to satisfy applicable Federal, state or local tax requirements,
and the Company shall have the right to deduct from any payment any taxes
required by law to be withheld by the Company with respect to such payment.
(c) The fair market value of one share of Common Stock for the date on
which a Right is exercised shall be determined as provided in Paragraph 5
for the determination of such value on the date of grant.
(d) Upon exercise of a Right, the number of shares of Common Stock subject
to exercise under the related Option shall automatically be reduced by the
number of shares of Common Stock represented by the Option, or portion thereof,
which is surrendered. Shares of Common Stock subject to Options, or portions
thereof, which are surrendered in connection with the exercise of Rights shall
not be available for subsequent Option grants under the Stock Option Plan.
(e) Whether payments upon exercise of Rights are made in cash, shares of
Common Stock or a combination thereof, the Committee shall have the sole
discretion as to the timing of the payments, including whether payment
shall be made in a lump sum or installments, but payments may not be
deferred beyond
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the first business day of the twenty-fifth calendar month next following the
month of exercise of a Right. Deferred payments may bear interest at a rate
determined by the Committee, provided that such rate of interest shall not be
less than the lowest rate which avoids imputation of interest at a higher rate
under the Code. The Board of Directors may make such further provisions and
adopt such rules and regulations as it shall deem appropriate, not inconsistent
with the Stock Option Plan, related to the timing of the exercise of a Right
and the determination of the form and timing of payment to the holder upon
such exercise.
9. Nontransferability of Options. No Options or Rights granted under the
Stock Option Plan shall be transferable, other than by will or by the laws of
descent and distribution, except that all or any portion of an Option (other
than Options which are ISOs) may be transferred to or for the benefit of (by
trust) the spouse or lineal descendants of a holder of such Option, subject to
such restrictions on transfer which may be imposed by federal and state
securities laws, and if prior thereto the transferee agrees to be bound by
the terms of the Stock Option Plan and the Options, as the case may be
("Permitted Transferee"). Options which are ISOs may be exercised, during
the lifetime of the holder, only by the holder, or by his guardian or legal
representative.
10. Termination of Relationship to the Company. (a) In the event that any
original grantee shall cease to be an Eligible Individual of the Company (or
any subsidiary thereof), except as set forth in Paragraph 11, such Option may
(subject to the provisions of the Stock Option Plan) be exercised (to the
extent that the original grantee was entitled to exercise such Option at the
termination of his employment or service as a director, officer, consultant,
adviser, agent or independent representative, as the case may be) at any time
within three months after such termination (or for such other period following
termination as the grantee and the Company may have agreed to in writing), but
not more than 10 years (five years in the case of a 10% Holder) after the date
on which such Option was granted or the expiration of the Option, if earlier.
Notwithstanding the foregoing, except as provided in Paragraph 11, if the
position of an original grantee shall be terminated by the Company or any
subsidiary thereof for cause or if the original grantee terminates his
employment or position voluntarily and without the written consent of the
Company or any subsidiary Company thereof, as the case may be, the Options
granted to such person, whether held by such person or by a Permitted
Transferee shall, to the extent not theretofore exercised, forthwith
terminate immediately upon such termination.
(b) Other than as provided in Paragraph 10(a), Options granted under the
Stock Option Plan shall not be affected by any change of duties or position
so long as the holder remains an Eligible Individual.
(c) Any Option Agreement may contain such provisions as the Committee shall
approve with reference to the determination of the date employment terminates
or the date other positions or relationships terminate for purposes of the
Stock Option Plan and the effect of leaves of absence, which provisions may
vary from one another.
(d) Nothing in the Stock Option Plan or in any Option granted pursuant to
the Stock Option Plan shall confer upon any Eligible Individual or other
person any right to continue in the employ of the Company or any subsidiary
corporation (or the right to be retained by, or have any continued
relationship with the Company or any subsidiary corporation thereof), or
affect the right of the Company or any such subsidiary corporation, as the
case may be, to terminate his employment, retention or relationship at any
time. The grant of any Option pursuant to the Stock Option Plan shall be
entirely in the discretion of the Committee and nothing in the Stock Option
Plan shall be construed to confer on any Eligible Individual any right to
receive any Option under the Stock Option Plan.
11. Death, Disability or Retirement of Optionee. (a) If a person to
whom an Option has been granted under the Stock Option Plan shall (i) die
(and the conditions in sub-paragraph (b) below are met) or (ii)
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become permanently and totally disabled or enter retirement (as such terms
are defined below) while serving as an Eligible Individual, the Option shall
become immediately fully exercisable and the period for exercise provided in
Paragraph 10 shall be extended to (i) one year after the date of death of
the original grantee, or (ii) in the case of the permanent and total
disability of the original grantee, to one year after the date of permanent
and total disability of the original grantee, or (iii) three years in the
case of a retirement (as defined below), but, in any case, not more than 10
years (five years in the case of a 10% Holder) after the date such Option was
granted, or the expiration of the Option, if earlier, as shall be prescribed
in the original grantee's Option Agreement. An Option may be exercised as
set forth herein in the event of the original grantee's death, by a Permitted
Transferee or the person or persons to whom the holder's rights under the
Option pass by will or applicable law, or if no such person has the right,
by his executors or administrators; or in the event of the original grantee's
permanent and total disability, by the holder or his guardian.
(b) In the case of death of a person to whom an Option was originally
granted, the provisions of subparagraph (a) apply if such person dies (i)
while in the employ of the Company or a subsidiary corporation thereof or
while serving as an Eligible Individual of the Company or a subsidiary
corporation thereof or (ii) within three months after the termination of
such position other than termination for cause, or voluntarily on the
original grantee's part and without the consent of the Company or a
subsidiary corporation thereof, or (iii) within three years following
his retirement.
(c) The term "permanent and total disability" as used above shall have
the meaning set forth in Section 22(e)(3) of the Code.
(d) The term "retirement" as used above shall mean voluntary termination
of employment with the Company or a subsidiary corporation thereof by the
Eligible Individual after attaining age 55 with at least 10 years of
service with the approval of the Company or, if the individual has not
attained age 55 and/or has less than 10 years of service, the Company
determines that circumstances exist that warrant the granting of
retirement status.
12. Adjustments upon Changes in Capitalization. Notwithstanding any
other provision of the Stock Option Plan, each Agreement may contain such
provisions as the Committee shall determine to be appropriate for the
adjustment of the number and class of shares of Common Stock covered by
such Option, the Option prices and the number of shares of Common Stock
as to which Options shall be exercisable at any time, in the event of
changes in the outstanding Common Stock of the Company by reason of stock
dividends, stock splits, reverse stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, spin-offs,
reorganizations, liquidations and the like. In the event of any such
change in the outstanding Common Stock of the Company, the aggregate
number of shares of Common Stock as to which Options may be granted under
the Stock Option Plan to any Eligible Individual shall be appropriately
adjusted by the Committee whose determination shall be conclusive. In the
event of (i) the dissolution, liquidation, merger or consolidation of the
Company or a sale of all or substantially all of the assets of the Company,
or (ii) the disposition by the Company of substantially all of the assets
or stock of a subsidiary of which the original grantee is then an employee,
officer or director, consultant, adviser, agent or independent
representative or (iii) a change in control (as hereinafter defined)
of the Company has occurred or is about to occur, then, if the Committee
shall so determine, each Option under the Stock Option Plan, if such event
shall occur with respect to the Company, or each Option granted to an
employee, officer, director, consultant, adviser, agent or independent
representative of a subsidiary respecting which such event shall occur,
shall (x) become immediately and fully exercisable or (y) terminate
simultaneously with the happening of such event, and the Company shall
pay the Optionee in lieu thereof an amount equal to (a) the excess of the
fair market value over the exercise price of one share on the date on
which such event occurs, multiplied by (b) the number of shares subject
to the Option, without regard to whether the Option is then otherwise
exercisable.
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<PAGE> 24
13. Effectiveness of the Stock Option Plan. Options may be granted under
the Stock Option Plan, subject to its authorization and adoption by
stockholders of the Company, at any time or from time to time after its
adoption by the Committee, but no Option shall be exercised under the
Stock Option Plan until the Stock Option Plan shall have been authorized
and adopted by a majority of the votes properly cast thereon at a meeting
of stockholders of the Company duly called and held within 12 months from
the date of adoption of the Stock Option Plan by the Board of Directors.
If so adopted, the Stock Option Plan shall become effective as of the date
of its adoption by the Board of Directors. The exercise of the Options shall
also be expressly subject to the condition that at the time of exercise a
registration statement under the Securities Act of 1933, as amended (the
"Act") shall be effective, or other provisions satisfactory to the Committee
shall have been made to ensure that such exercise will not result in a
violation of such Act, and such other qualification under any state or Federal
law, rule or regulation as the Company shall determine to be necessary or
advisable shall have been effected. If the shares of Common Stock issuable
upon exercise of an Option are not registered under such Act, and if the
Committee shall deem it advisable, the Optionee may be required to represent
and agree in writing (i) that any shares of Common Stock acquired pursuant to
the Stock Option Plan will not be sold except pursuant to an effective
registration statement under such Act or an exemption from the registration
provisions of the Act and (ii) that such Optionee will be acquiring such
shares of Common Stock for his own account and not with a view to the
distribution thereof and (iii) that the holder accepts such restrictions on
transfer of such shares, including, without limitation, the affixing to any
certificate representing such shares of an appropriate legend restricting
transfer as the Company may reasonably impose.
14. Termination and Amendment of the Stock Option Plan. The Board of
Directors of the Company may, at any time prior to the termination of the
Stock Option Plan, suspend, terminate, modify or amend the Stock Option Plan;
provided that any increase in the aggregate number of shares of Common Stock
reserved for issue upon the exercise of Options, any amendment which would
materially increase the benefits accruing to participants under the Stock
Option Plan, or any material modification in the requirements as to
eligibility for participation in the Stock Option Plan, shall be subject
to the approval of stockholders in the manner provided in Paragraph 13,
except that any such increase, amendment or change that may result from
adjustments authorized by Paragraph 12 or adjustments based on revisions
to the Code or regulations promulgated thereunder (to the extent permitted
by such authorities) shall not require such approval. No suspension,
termination, modification or amendment of the Stock Option Plan may, without
the express written consent of the Eligible Individual (or his Permitted
Transferee) to whom an Option shall theretofore have been granted, adversely
affect the rights of such Eligible Individual (or his Permitted Transferee)
under such Option.
15. Financing for Investment in Stock of the Company. The Board of
Directors may cause the Company or any subsidiary to give or arrange for
financing, including direct loans, secured or unsecured, or guaranties of
loans by banks which loans may be secured in whole or in part by assets of
the Company or any subsidiary, to any Eligible Individual under the Stock
Option Plan who shall have been so employed or so served for a period of at
least six months at the end of the fiscal year ended immediately prior to
arranging such financing; but the Board of Directors may, in any specific
case, authorize financing for an Eligible Individual who shall not have
served for such a period. Such financing shall be for the purpose of
providing funds for the purchase by the Eligible Individual of shares of
Common Stock pursuant to the exercise of an Option and/or for payment of
taxes incurred in connection with such exercise, and/or for the purpose of
otherwise purchasing or carrying a stock investment in the Company. The
maximum amount of liability incurred by the Company and its subsidiaries
in connection with all such financing outstanding shall be determined from
time to time in the discretion of the Board of Directors. Each loan shall
bear interest at a rate not less than that provided by the Code and other
applicable law, rules, and regulations in order to avoid the imputation of
interest at a higher rate. Each recipient of such financing shall be
personally liable for the full amount of all financing extended to him.
Such financing shall be based upon the judgment of
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the Board of Directors that such financing may be reasonably be expected
to benefit the Company, and that such financing as may be granted shall be
consistent with the Certificate of Incorporation and By-Laws of the Company
or such subsidiary, and applicable laws.
If any such financing is authorized by the Board of Directors, such
financing shall be administered by the Board of Directors.
16. Severability. In the event that any one or more provisions of the
Stock Option Plan or any Agreement, or any action taken pursuant to the
Stock Option Plan or such Agreement, should, for any reason, be unenforceable
or invalid in any respect under the laws of the United States, any state or
the United States or any other government, such unenforceability or invalidity
shall not affect any other provision of the Stock Option Plan or of such or
any other Agreement, but in such particular jurisdiction and instance the
Stock Option Plan and the affected Agreement shall be construed as if such
unenforceable or invalid provision had not been contained therein or if the
action in question had not been taken thereunder.
17. Applicable Law. The Stock Option Plan shall be governed and interpreted,
construed and applied in accordance with the laws of the State of Pennsylvania.
18. Withholding. A holder shall, upon notification of the amount due and
prior to or concurrently with delivery to such holder of a certificate
representing such shares of Common Stock, pay promptly any amount necessary
to satisfy applicable Federal, state, local or other tax requirements.
19. Miscellaneous.
1. The terms "parent," "subsidiary" and "subsidiary corporation" shall have
the meanings set forth in Sections 424(e) and (f) of the Code, respectively.
2. The term "terminated for cause" shall mean termination by the Company
(or a subsidiary thereof) of the employment of or other relationship with,
the original grantee by reason of the grantee's (i) wilful refusal to
perform his obligations to the Company (or a subsidiary thereof), (ii)
wilful misconduct, contrary to the interests of the Company (or a subsidiary
thereof), or (iii) commission of a serious criminal act, whether denominated
a felony, misdemeanor or otherwise. In the event of any dispute regarding
whether a termination for cause has occurred, the Board of Directors may by
resolution resolve such dispute and such resolution shall be final and
conclusive on all parties.
3. The term "change in control" shall mean an event or series of events
that results in (i) a person, partnership, joint venture, corporation or
other entity, or two or more of any of the foregoing acting as a "person"
within the meaning of Sections 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Act"), other than the Company, a majority-owned
subsidiary of the Company of an employee benefit plan of the Company or
such subsidiary (or such plan's related trust), become(s) the "beneficial
owner" (as defined in Rule 13d-3 under the Act) of 20% or more of the then
outstanding voting stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Company's Board of Directors (together with any new director
whose election by the Company's Board or whose nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the directors then in office; (iii) all or substantially all of the
business of the Company is disposed of pursuant to a merger, consolidation
or other transaction in which the Company is not the surviving corporation
or the Company combines with another company and is the surviving corporation
(unless the shareholders of the Company immediately following such merger,
consolidation, combination,
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or other transaction beneficially own, directly or indirectly, more than
50% of the aggregate voting stock or other ownership interests of (x) the
entity or entities, if any, that succeed to the business of the Company or
(y) the combined company).
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ANNEX B
JONES APPAREL GROUP, INC.
EXECUTIVE ANNUAL INCENTIVE PLAN
1. Purpose.
The purpose of the Jones Apparel Group, Inc. Executive Annual Incentive Plan
is to provide an incentive to executive officers who contribute to the
success of the business, by rewarding superior financial performance that
supports shareholder value.
2. Definitions.
The following terms shall have the following meanings:
(a) "Award" shall mean an annual incentive compensation award, granted
under the Plan, which is contingent upon the attainment of
Performance Factors with respect to a Performance Period.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Committee of the Board appointed to
administer the Plan in accordance with Section 3.
(e) "Company" shall mean, collectively, Jones Apparel Group, Inc. and
its subsidiaries.
(f) "Covered Employee" shall have the meaning set forth in Section 162(m)(3)
of the Code.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(h) "Incentive Pool" shall mean the maximum aggregate amount that may be paid
as Awards to Participants who are Covered Employees with respect to a
Performance Period. The Incentive Pool shall equal 3.0% of Income Before
Provision For Income Taxes of the Company but adjusted to exclude the
impact of extraordinary items, discontinued operations, and changes in
accounting principles recognized in such Performance Period.
(i) "Income Before Provision for Income Taxes" shall mean, with respect to any
Performance Period, the pre-tax income of the Company and its consolidated
subsidiaries for such year, as shown in the Company's Annual Report to
Stockholders, but adjusted to exclude the impact of extraordinary items,
discontinued operations, and changes in accounting principles recognized
in such year.
(j) "Participant" shall mean the executive officers of the Company who are
deemed Covered Employees, subject to the approval of the Committee, to
participate in the Plan.
(k) "Performance Factors" shall mean the criteria and objectives, determined
by the Committee, which must be met during the applicable Performance
Period as a condition of the Participant's receipt of payment with
respect to an Award. Performance Factors may include any or all of
the following:
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revenue; net sales; operating income; earnings before all or any of
interest, taxes, depreciation and/or amortization ("EBIT", "EBITA"
or "EBITDA"); cash flow; working capital and components thereof; return
on equity; return on assets; return on investment; stock price; total
shareholder return; market share; earnings per share; earnings from
continuing operations; levels of expense, cost or liability by category,
operating unit or any other delineation; or any increase or decrease of
one or more of the foregoing over a specified period.
Such Performance Factors may relate to the performance of the Company, a
business unit, product line, territory, customer(s), or other category or
any combination thereof. Such Performance Factors may be measured against
goals established by the Committee, against the performance of peer
organizations or against any external index. Subject to Section 5(c)
hereof, the Committee shall have the sole discretion to determine whether,
or to what extent, Performance Factors are achieved.
(l) "Performance Period" shall mean the Company's fiscal year.
(m) "Plan" shall mean The Jones Apparel Group, Inc. Executive Annual Incentive
Plan.
3. Administration.
The Plan shall be administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the Plan, the Committee shall have
the authority to:
- determine the persons designated as Participants in the Plan;
- determine the terms, conditions, restrictions and performance criteria,
including Performance Factors, relating to any Award;
- determine whether, to what extent, and under what circumstances an Award
may be settled, canceled, forfeited, or surrendered;
- make adjustments in the Performance Factors in recognition of unusual or
non-recurring events affecting the Company or the financial statements of
the Company, or in response to changes in applicable laws, regulations,
or accounting principles;
- construe and interpret the Plan and any Award;
- prescribe, amend and rescind rules and regulations relating to the
Plan; and
- make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee shall consist of two or more persons, each of whom shall be an
"outside director" within the meaning of Section 162(m) of the Code. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company and the Participant (or any
person claiming any rights under the Plan from or through any Participant).
No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any Award
granted under the Plan.
4. Eligibility.
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Executive Officers of the Company who are Covered Employees, or individuals
who the Committee expects to become Covered Employees, shall be eligible to
participate in the Plan for a particular Performance Period. At the beginning
of each Performance Period, the Committee will review the individuals and, in
its sole discretion, approve the individuals who will be Participants in the
Plan for the Performance Period.
5. Terms of Awards.
Awards granted pursuant to the Plan shall be communicated to Participants in
such form as the Committee shall from time to time approve, and the terms and
conditions of such Awards shall be set forth therein.
(a) In General. The Committee shall specify with respect to a Performance
Period the Performance Factors applicable to each Award. Performance Factors
may include a level of performance below which no payment shall be made and
levels of performance at which specified percentages of the Award shall be
paid, as well as a maximum level of performance above which no additional
award will be paid. Unless otherwise provided by the Committee in connection
with specified terminations of employment, payment in respect of Awards shall
be made only if and to the extent the Performance Factors with respect to such
Performance Period are attained.
(b) Special Provisions Regarding Awards to Covered Employees.
Notwithstanding anything to the contrary contained in this Section 5, any
Award to any Covered Employee shall be granted in accord with the provisions
of this Section 5(b). For each Performance Period, (i) the aggregate amount
available as Awards under the Plan to all Covered Employees shall not exceed
the Incentive Pool, and (ii) the maximum Award to any individual Covered
Employee shall not exceed $3,000,000.
The Committee shall, no later than the end of the first quarter of each
Performance Period, allocate percentages of the Incentive Pool (not to exceed
100% in the aggregate) which shall be payable as Awards to the individuals who
are deemed to be Covered Employees for such Performance Period. In making
Awards to Covered Employees with respect to any Performance Period, the
Committee may determine that the aggregate amount paid to Covered Employees
shall be less than the Incentive Pool for such year, but the excess amount
shall not be available for Awards to Covered Employees for future years. In
addition, the Committee may apply discretion to reduce or eliminate the amount
of an Award under the Plan payable to a Covered Employee based on its
assessment of business results compared to specified Performance Factors or
any other factors.
(c) Time and Form of Payment. Unless otherwise determined by the Committee,
all payments in respect of Awards granted under the Plan shall be made in cash,
within a reasonable period after the end of the Performance Period, but after
Awards based on the allocation of the Incentive Pool, as described in Section
5(b), have been certified by the Committee.
6. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan
shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by any regulatory or governmental agency
as may be required.
(b) Nontransferability. Awards shall not be transferable by a Participant
except upon the Participant's death following the end of the Performance Period
but prior to the date payment is made, in which case the Award shall be
transferable by will or the laws of descent and distribution.
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<PAGE> 30
(c) No Right To Continued Employment. Nothing in the Plan or in any Award
granted under the Plan shall confer upon any Participant the right to continue
in the employ of the Company or to be entitled to any remuneration or benefits
not set forth in the Plan. Participation in the Plan shall not interfere with
or limit in any way the right of the Company to terminate a Participant's
employment.
(d) Withholding Taxes. The Company shall have the right to withhold the
amount of any taxes due with respect to payment of any Award under the Plan.
(e) Amendment, Termination and Duration of the Plan. The Board or the
Committee may at any time amend, suspend, or terminate the Plan in whole or
in part; provided that, no amendment that requires shareholder approval in
order for the Plan to continue to comply with Code Section 162(m) shall be
effective unless approved by the requisite vote of the shareholders of the
Company. Notwithstanding the foregoing, no amendment shall affect adversely
any of the rights of any Participant under any Award during or following the
end of the Performance Period to which such Award relates.
(f) Participant Rights. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
(g) Termination of Employment. Unless otherwise provided by the Committee,
if a Participant's employment terminates for any reason prior to the end of a
Performance Period, no Award shall be payable to such Participant for that
Performance Period. A Participant who is terminated for gross misconduct after
the end of the Performance Period shall forfeit participation in the Plan, and
no Award shall be payable to such a Participant.
(h) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments not yet made to a Participant pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
(i) Governing Law. Administration of the Plan shall be governed by the
laws of the State of New York.
(j) Effective Date. The Plan shall take effect upon its adoption by the
Board; provided, however, that the Plan shall be subject to the requisite
approval of the shareholders of the Company in order to comply with Section
162(m) of the Code. In the absence of such approval, the Plan (and any Awards
made pursuant to the Plan prior to the date of such approval) shall be null
and void.
(k) Beneficiary. Each Participant shall designate a beneficiary or
beneficiaries to receive payment of any Awards earned under this Plan in the
case of death. If no designated beneficiary survives the Participant and an
Award is payable to the Participant's beneficiary pursuant to Section 6(b),
the executor or administrator of the Participant's estate shall be deemed to
be the grantee's beneficiary.
(l) Interpretation. The Plan is designed and intended to comply, to the
extent applicable, with Section 162(m) of the Code, and all provisions of
the Plan shall be construed in a manner to so comply.
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<PAGE> 31
[FRONT SIDE]
PROXY
JONES APPAREL GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sidney Kimmel, Herbert J. Goodfriend and
Wesley R. Card, and each of them, each with full power to act without the
other, and with full power of substitution, the attorneys and proxies of the
undersigned and hereby authorizes them to represent and to vote, all the
shares of Common Stock of Jones Apparel Group, Inc. that the undersigned would
be entitled to vote, if personally present, at the Annual Meeting of
Stockholders to be held on May 19, 1999 or any adjournment thereof, upon
such business as may properly come before the meeting, including the items set
forth on the reverse side.
(Continued, and to be marked, dated and signed, on the other side)
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<PAGE> 32
[REVERSE SIDE]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE Please mark
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. your votes
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR as indicated
PROPOSALS 1, 2, 3 AND 4. in this
example [X]
1. ELECTION OF NOMINEES: Sidney Kimmel, 2. Ratification of
DIRECTORS Jackwyn Nemerov, BDO Seidman, LLP
Irwin Samelman, as the independent
FOR all WITHHOLD Geraldine Stutz, certified public
nominees AUTHORITY Howard Gittis, accountants of
listed to to vote Eric A. Rothfeld, the corporation.
the right for all and Mark J. Schwartz
(except as nominees FOR AGAINST ABSTAIN
marked to listed to INSTRUCTION: To withhold [ ] [ ] [ ]
the contrary) the right authority to vote for
[ ] [ ] any individual nominee,
write that nominee's
name in the space
provided below.
_______________________
3. Approval of 1999 4. Approval of Executive 5. In their discretion,
Stock Option Plan Annual Incentive Plan the Proxies are
authorized to vote
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN upon such other
[ ] [ ] [ ] [ ] [ ] [ ] business as may properly
come before the meeting.
Please sign exactly as the name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
Dated: __________________________, 1999
_______________________________________
Signature
_______________________________________
Signature if held jointly
(PLEASE SIGN, DATE, AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE)
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